Exclusive interview: Peter Munk on ‘hubris,’ ‘stupidity’ and the future of Barrick Gold
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In an exclusive interview with The Globe and Mail, outgoing Barrick Gold Corp. chairman Peter Munk:

Blames himself for getting caught up in the metals mania.

Outlines four factors that damaged Barrick in recent years.

Vows Barrick will emerge as one of the world’s diversified mining titans.

It was spring 2011, and a
frenzy had gripped the mining industry.

Mr. Munk is perhaps best known for Barrick Gold Corp., a mining firm he founded in 1983. What started with a small stake in a Northern Ontario mine has evolved into the world’s largest gold producer.
The Globe and Mail

Mining

Under Mr. Munk’s leadership, Barrick made several billion-dollar deals, including the purchases of Lac Minerals Ltd. and Placer Dome Inc. More recently the company has been forced to record costly writedowns and to suspend construction at its key Pascua Lama gold mine in South America.
The Globe and Mail

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Mining trucks sit parked at the delayed Barrick Gold Pascua-Lama project in northern Chile. After its second major writedown in just six months, Barrick is trying to wooing back shaken investors by focusing on assets closer to home.
BARRICK GOLD

Market View

As China consumed ever-growing amounts of copper, gold, nickel and other
metals, prices were breaking records and mining companies were launching multibillion-dollar deals. The
mantra in the resource sector was “growth, growth, growth.”

Barrick Gold Corp. was
readying its arsenal. With gold prices flying high, the company earned a record
$3.3-billion (U.S.) in 2010. The gold producer had the strongest credit rating
among its peers, and everywhere Barrick
chairman Peter Munk turned, brokers were
offering to lend the company billions of dollars at low financing rates.

At the time, the large Lumwana
copper property in Zambia owned by Toronto-listed Equinox Minerals Ltd. was a
coveted prize for industry’s big base metals players. As a gold company, Barrick was not seen as a likely bidder.

Barrick launched a blowout bid
of $7.3-billion in cash for Equinox in April, 2011, a staggering amount that
clinched the deal.

It didn’t go well.

Early this year Barrick
announced a $3.8-billion (U.S.) writedown largely tied to Equinox, an
acknowledgment that it far overpaid for the company.

Now Barrick is a wounded company,
its former strength sapped by poor acquisitions and mine developments gone
horribly wrong. China’s growth has cooled and the metal mania has long faded. Barrick has suffered big losses, its credit
rating has been slashed and its once-pristine balance sheet is heavy with debt.
Its stock price, at $16.72 (Canadian) Wednesday, has retreated to levels seen 20 years
ago.

Mr. Munk looks back at the Equinox
era, when companies were madly acquiring rivals with the belief that metal
prices would endlessly soar, and puts the blame squarely on himself.

“We bought Equinox to increase our copper. And that was my first major
mistake – entirely attributed to hubris,” Mr. Munk said in an exclusive interview with The
Globe and Mail.

“The very fact that I accepted that stupidity … that I kept on believing,
because everyone kept on saying gold goes up. I should have known,” he said.

Barrick announced Wednesday that
Mr. Munk will hand over the
chairmanship of the company he founded in 1983 to former Goldman Sachs president
John Thornton at the next annual meeting of shareholders.

The company also shook up its board, which has been criticized for not
exercising enough independence from Mr. Munk. Long-standing board members Brian Mulroney,
a former prime minister of Canada, and Howard Beck, a lawyer who has served as a
director since Barrick’s
inception, will also stand down at the annual meeting. The board nominated four
new members, including Bay Street veteran Ned Goodman.

The timing of his exit is tough for Mr. Munk, who built Barrick up from nothing into the world’s largest
gold producer, a stunning achievement in a country that features few global
industry leaders.

“We’ve had a rough year, rough 18 months I say. But equally, as I keep on
telling my children, and any business school I am asked to speak to, you don’t
go through being a hero year after year without encountering the odd rough
days,” Mr. Munk said from his office on the
37th floor of a Bay Street skyscraper.

But whatever problems Barrick is
sorting through now, Mr. Munk remains
steadfast that Barrick will eventually grow to
be on par with the very biggest of the world’s diversified mining giants such as
Rio Tinto (often called RTZ) and BHP
Billiton.

“I really believe that Barrick’s
destiny is the North American RTZ and BHP, and that’s what it will be without a
shadow of a doubt.”

A gold giant is born

Peter Munk had been a contrarian investor all his life.
His first business was an idea he hatched with friend David Gilmour to create newfangled stereo systems from
Canada, which became a must-have for the likes of Hugh Hefner and Frank
Sinatra.

When that fizzled out, they decided to start a hotel chain in Australia and
Asia because Hilton and all the other major hotel chains were already
established in North America.

Then when the price of gold took a nosedive in the early 1980s from a high of
$850 (U.S.) an ounce to just above $400 an ounce, Mr. Munk and Mr. Gilmour decided that this was the time to start a
gold company.

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